AFP, Posted on Thursday, May 05, 2022 at 6:35 pm
Another whirlwind and surprise meeting for the OPEC + oil-producing countries, which agreed on Thursday to further increase their production in black gold, comforted by the risks of demand amid anti-corruption restrictions. Covid in China.
The representatives of the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC) and their ten partners (OPEC +) decided to “adjust upwards the total monthly production of 432,000 barrels per day for the month of June”, the alliance announced in a press release.
As in previous months, the cartel adheres to its strategy of very gradually increasing its production, “given the fundamentals and prospects that suggest a balanced market.”
After making drastic cuts in the spring of 2020 in the face of the shock of the pandemic, the 23 members began to reopen the gates in the spring of 2021.
Too late, however, for the tastes of the West, led by the United States, as prices soared after the invasion of Ukraine.
They erupted again this week after the announcement of the proposed European embargo on Russian oil, the two benchmarks of black gold traded for just over $ 110 a barrel on Thursday, marking an increase of 10 15% compared to February 24.
For Capital Economics’ Edward Gardner, “this suggests that the market is more supply-side than OPEC + suggests.”
– China, a new argument –
The alliance has so far resisted calls from all sides to accelerate the pace, a focus that is now being heightened by the situation in China.
Largely saved for two years, the country has faced the worst outbreak in recent weeks, undermining its Covid zero-sum strategy.
Beijing closed dozens of subway stations on Wednesday, and residents now fear the curfew, as in Shanghai, China’s largest city of 25 million, where most cases are reported.
“The slowdown in China is certainly a factor justifying an OPEC + status quo, despite international pressure to increase supply in the face of the current energy crisis,” Swissquote analyst Ipek Ozkardeskaya told AFP.
Fears of a global economic slowdown caused by the war in Ukraine are also weighing on the market.
The International Monetary Fund (IMF) sharply cut its forecast for global growth for 2022 in late April due to the “seismic waves” caused by the conflict, especially the galloping inflation that undermines the purchasing power of consumers.
In this hectic climate, OPEC + recently revised its own estimates downwards.
– Geopolitics and quotas –
In stagnant demand, there is also a geopolitical element that explains the wait-and-see attitude of OPEC +, says Ms. Ozkardeskaya, referring to “a power struggle over oil supply.”
Despite the war, the group “remains an ally of Russia and works against the will of the United States to increase crude production,” the analyst said. “OPEC + countries are simply reluctant to replace Russian oil.”
For Stephen Innes, an analyst at Spi Asset Management, this policy is “becoming increasingly unfounded” and “contrary to the mission” of regulating the market of this alliance that was formed in 2016.
However, it would be necessary for the alliance to be able to respect its quotas.
However, amid a lack of investment in oil infrastructure in some member states or operational problems, the cartel regularly fails to meet its production targets.